Tata Consultancy Rises to Record on Demand Outlook: Mumbai Mover

Tata Consultancy Services Ltd. (TCS),
Asia’s largest computer-services exporter by market value,
surged to a record after saying a “healthy” pipeline of
outsourcing orders would boost sales this year.

Shares of Tata Consultancy climbed 5 percent to 1,742.80
rupees at the close in Mumbai trading, the highest since its
listing in August 2004. The stock was the best performer on the
30-company benchmark S&P BSE Sensex which rose 0.1 percent.

“Our pipeline is very, very good not only in the U.S. but
everywhere else,” Chief Executive Officer N. Chandrasekaran
said at a news conference yesterday. “All our sectors financial
services, telecom, retail, manufacturing, life sciences have all
shown very good growth as well as very good demand, so we are
looking forward to a good” year, he said.

Tata Consultancy, which reported profit that beat analysts’
estimates, joins smaller competitor Infosys Ltd. (INFO) in signaling
demand for outsourced software work has increased. Seven of the
10 large deals Mumbai-based Tata Consultancy won last quarter
were from companies in the U.S., suggesting demand for
information technology services is rising in North America, the
largest market for Tata Consultancy and Infosys.

“On the demand front, Infosys numbers and TCS numbers are
showing some kind of improvement, specially in the U.S.,” Nitin Prakash Daga, analyst at Microsec Capital Ltd., said by phone
from Kolkata. “Going by the growth in volumes, improvement in
its margins” Tata Consultancy has outperformed, Daga said.

Sales Surpasses

Net income rose 16 percent to 38 billion rupees ($636
million) in the three months ended June from a year earlier,
Tata Consultancy said. That surpassed the 37.5 billion-rupee
median of 40 analysts’ estimates compiled by Bloomberg.

Sales rose 21 percent from a year earlier to 179.9 billion
rupees. That compared with the 176.2 billion-rupee median
estimate compiled by Bloomberg.

Infosys reported July 12 a 3.7 percent increase in first-quarter profit to 23.7 billion rupees. Revenue climbed 17
percent, the Bangalore-based company said at the time.

Tata Consultancy, which provides computer services and back
office support to companies including Citigroup Inc. and Network
Rail in the U.K., won two new $100 million clients in the
quarter, the company said in a statement. A global aerospace
major and a leading Nordic airline outsourced work to the Indian
software-services provider, it said.

Chandrasekaran said Tata Consultancy expects sales growth
in the year ending March to be above industry average. India’s
software industry group Nasscom has forecast the nation’s
computer services exports will expand as much as 14 percent.

‘Right Signals’

“We’ve been saying this year will be better than last year
-- how much better is still a question,” Chandrasekaran said in
an interview with Bloomberg TV India today. “All signs in terms
of business cycles, pick up of businesses in different markets,
are coming together -- all the right signals are there. U.S.
companies are adopting technologies faster -- looking for new
ways to invest in technology.”

Spending on IT services worldwide is estimated to climb 2.2
percent this year, up from 2 percent in 2012, Gartner said July
2. The Stamford, Connecticut-based research company had in March
forecast a 4.5 percent increase in 2013.

Shares of Infosys surged the most in six months in Mumbai
trading July 12 after the company’s sales forecast in dollar
terms beat analyst estimates. The company reiterated full-year
dollar revenue will increase 6 percent to 10 percent. Ten
analysts in a Bloomberg News survey predicted Infosys would cut
the top end of its guidance to 7.5 percent.

Immigration Bill

The outsourcing industry, especially India’s software-services providers may be affected by the changes in visa rules
if a U.S. immigration bill that has been passed by the Senate
and awaits a vote in the House of Representatives is implemented
as it is, according to Anurag Rana, a Bloomberg Industries
analyst.

“The real thing is going to be to figure out what happens
on the immigration front,” Rana said yesterday. “That has the
potential to change the entire outsourcing model.”

Among the various changes in the proposed immigration law
is a measure to restrict companies with a U.S.-based staff
comprised of visa holders in excess of 15 percent from placing
those employees at domestic client locations. This rule “really
just shuts you off from the entire business,” Infosys’s Chief
Financial Officer Rajiv Bansal said at the Sanford C. Bernstein
Strategic Decisions Conference on May 31.

Tata Consultancy and Infosys get the bulk of their sales
from companies in North America. The region contributed 62
percent of Infosys’s revenue in the year ended March, while Tata
Consultancy made 53 percent of its sales in that market in the
same 12-month period.

“There is no impact from” concerns about the immigration
bill, Chandrasekaran said yesterday. “Clients know what is
going on. We have a strong presence in the U.S. and we partner
with clients and wherever required we are in discussions. We
should just wait for the process to be over.”